The One and Only Financial Resolution You Need to Make in 2012

As you consider your financial goals for 2012, remember that trying to tackle too many projects or resolutions at once can quickly derail you. (How often have you set out to adopt every virtue on New Year's Eve only to lose all momentum by February?) So let's try something with staying power this year: Read the following six goals. If there is one that makes you think, Oh, I would feel so amazing if I could nail that one, that, my friend, is the one and only resolution I want you to focus on. If in a few months you want to tackle another one, great. But for now, apply laser focus. Giving one goal your all—one deliberate step at a time—is the best path I've seen to success.

-"This is the year I get serious about emergency savings."
As of September 2011, about four in ten unemployed Americans had been out of work for more than six months. I know my advice to have eight months of emergency savings can be a serious challenge—and I don't expect you to be able to check this off your to-do list in a few months—but it's doable, if you push past good intentions to action. Set up a monthly automatic deposit from your checking account into a savings account. Then think of an amount you can reasonably save each month—and double it. Don't dismiss this as impossible. I have rarely seen a household budget that couldn't be seriously trimmed. To really boost your savings, try living on 75 percent of your income for one month (or, for dual-income households, living on one salary). Little luxuries you'd normally justify by saying you "must" have them will quickly reveal themselves to be the drain that they are—and your emergency savings fund will get a nice bump.

-"This is the year I have "the talk" with my parents."
As if your own financial security weren't stressful enough, you may also be worrying about your parents and the security of their retirement and estate. Talking about this is how an adult child shows her love for an aging parent, and I applaud you for caring. Unfortunately, most people stop at retirement savings and trusts—they don't dig into all future scenarios. Encourage your parents to seriously consider long-term-care insurance (LTCI). Given long life expectancies and the extreme cost of nursing home and at-home care, LTCI can be a godsend for families. It can give you peace of mind that a loved one's needs won't bankrupt you, and it can save you from shouldering the burden of being a full-time caregiver. Learn more at LongTermCare.gov and GotLTCI.com.

-"This is the year I teach my kids how to value money."
Schools, for the most part, do a lousy job teaching kids about money. That falls to you. Don't expect them to learn through family telepathy; I urge you to start the conversation when they're young. Kids love interactive games more than lectures, so drive home the power of money with an exercise they can excel at. Sit with your kids and show them what your utility bills are—how much it costs to make the laptops hum and the water run. Then tell them how much your bill was a year ago for the current month. For example, what was your January 2011 bill? Have your kids calculate 10 to 15 percent of that bill. Next, explain that if this January's bill can be that much lower (you decide what actual percent you want to aim for), you will split the savings with them. It's amazing how quickly this helps kids connect shorter showers and turning off lights to the dollars and cents your family spends—or saves. And the Great Utility Challenge, as I call this, can also start other family converstions about money. For super kid-friendly energy tips, visit the federal government's Energy Star Web site (EnergyStar.gov).

-"This is the year I curb my appetite for Groupon and LivingSocial."
The fact that you spend less on something does not make purchasing it a smart move—or make it something you can afford. A deal that reduces the tab at a favorite restaurant or halves the price of a pair of designer shoes can still be a huge mistake. Yet people get so seduced by the amount of money they're "saving,: they overlook the fact that they're still spending. This needs to stop. Spending a cent on any "want" when your long-term needs are being ignored or shortchanged is irresponsible. A discount can be a disaster if it keeps you from focusing on what's important.

-"This is the year I stop thinking of financial windfalls as 'splurge money.'"
Coaxing yourself to cut spending in favor of saving can be hard. Saving money before it ever lands in your checking account is infinitely easier. What I see all too often, though, is a tendency for people to almost mindlessly increase their spending when they receive a windfall like a work bonus, raise, or unexpected gift. Make a pact right here and now that this won't happen to you in 2012—you're going to save 75 percent of every bit of unexpected money that comes your way, no ifs, ands, or buts. The other 25 percent? Feel free to spend it. (But if you want to save that, too, you get my serious approval.) Staying on a plan that's all about denial is nearly impossible; a balanced, moderate approach is more sustainable. So giving yourself permission to spend 25 percent of the money can actually be the key to saving the other 75 percent.

-"This is the year I max out my company's 401(k) match."
The amount you save for retirement is far more important than how you invest that money. Don't get me wrong; I want you to pay attention to the types of mutual funds and ETFs you choose for your retirement portfolio. But even the most brilliantly diversified portfolio isn't going to get the job done if you're not putting enough into it. You already know you should contribute enough to your work-based retirement account to get the full match from your employer. Now here's your goal for 2012: Tally up what you set aside in your 401(k) and IRA, and increase that amount by 1 percent. Next year increase it by another percent. Keep this up until you are setting aside 15 percent of your gross income for retirement. I know 15 percent may sound overwhelming, but here's the beauty of this structure: There's no way you can tell me with a straight face that you can't afford 1 percent more each year. You'll barely notice the difference in your checking account. Yet that small difference can add tens of thousands of dollars to your retirement account over time.

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